Due Diligence Case Studies

Credit Line

A South American investor sought approval of a multi-million dollar credit line from a local financial institution. Assets listed included a manufacturing facility in the investor’s home country, and the client was seeking verification of the facility’s capacity. An associate in Miami arranged for a reputable investigator to visit the facility. He confirmed its status with local business owners and the local Chamber of Commerce and prepared a carefully written report with supporting photographs. The investor’s request for credit was granted.

Investment Capital

An attorney contacted us on behalf of a client who wanted to invest a substantial sum into a manufacturing project. We were provided with web-based resumes on the subject. Our online research verified his past accomplishments in the industrial sector. He had prior success with other enterprises in the Midwest, and his career was well-documented in business and industry journals.

However, we uncovered a federal tax lien for several hundred thousand dollars filed against him in his county of residence and state tax liens for failure to pay sales tax associated with a prior business. We also found liens against his personal residence filed by the homeowner’s association, and a previously undisclosed bankruptcy filed three years prior.

While this may or may not have been a “deal-killer,” it certainly was valuable information for the client in making a personal decision to invest a substantial sum into the proposed venture. As always, the caveat applies: “Past performance does not guarantee future returns.” This proposed venture may prove to be wildly successful and generate sufficient profits to provide the means to eliminate his debt. However, it is better to know beforehand than to discover it after the fact.

Expert Witness Vetting

Due diligence investigations don’t always involve financial transactions. Attorneys request background research on expert witnesses because it is reasonable and prudent to know something about a potential witness. One of our clients routinely requests a brief background check on witnesses he is deposing. This consists of a statewide search for arrests and litigation history in the county or counties where the witness lives or has lived.

Especially with expert witnesses, a verification of education can be extremely important. Years ago, before what we glibly call “Web 2.0,” we were defending a client charged with possession of child pornography on his home computer. The forensic science was in the nascent stage, and both prosecutors and defense attorneys were reliant on “experts” to guide them in their litigation. My attorney-client asked me to conduct a routine education verification for our expert, whose name we were submitting to the Assistant United States Attorney the following day as a listed witness. The expert, an adjunct professor at a local university, had previously testified in several trials in state court. He had been referred to us by another local defense attorney, and we were provided with the gentleman’s curriculum vitae (CV) that listed a number of colleges and universities.

I was skeptical, but the attorney was insistent. As I examined the CV, I concentrated on the university where the witness had been awarded his doctorate. The institution was in New Orleans, and I developed a central phone number, which was not in service. I continued to try to develop other numbers (this was several years before yellowpages.com) and all were either experiencing technical difficulty, not in service, or disconnected.

After three hours of fruitless effort, I contacted a staff writer at the Times-Picayune, a local newspaper. I explained my situation and she burst out laughing when I mentioned the “university” I was researching.

“That was closed as a diploma mill last year!” she stuttered between belly laughs.

Oh, boy, I thought. An hour later, I had the faxed news article on my desk, along with a number of related stories of people all over the country who were exposed as frauds by claiming a doctorate or graduate degree from this disgraced facility. The principals were themselves the subjects of state and federal investigations.

What made this discovery so important was that the prosecutor would have uncovered this outrageous claim within a few days of our submitting the expert’s name by performing the same research. Needless to say, we dropped our “expert” from the case and pursued another more verifiable, qualified consultant.

Whether your client is making a substantial investment with unfamiliar third parties or you are preparing for a deposition of a witness, it pays to examine the background and history of the people who can impact your balance sheet or your litigation.

Call us at 561-687-8381and let us look around for you. Remember, “The price of information is always less than the pain of regret.”